Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are lower again — ES -0.4%, NQ -0.7% — with SPX having closed Monday at 7,109 (-0.24%) after Friday’s 7,126 ATH. The Strait of Hormuz remains closed after the weekend re-closure, and Trump told Bloomberg that a ceasefire extension is “highly unlikely” — the truce announced April 7 expires Wednesday evening Washington time. Trump’s public line to PBS: if no deal, “lots of bombs start going off.” VP Vance departs for Pakistan today for Wednesday talks with Iran. Oil held the bid — WTI ~$89-90, Brent ~$95 — and VIX is working back into the high-18s. March retail sales print this morning.

Key levels: 7,100 pivot.

7,050 first support. Resistance: 7,126 & 7,150

The big binary catalyst is the ceasefire deadline tomorrow evening, and that event appears to have no material hedging. The “gap into post-OPEX” we flagged Monday played out only modestly (SPX -0.24%), and stock-level put flow collapsed further to P0.3 overnight — the single lowest reading in the dataset. Dealer long gamma is currently positive, and only really fades below 7,050. Given the ceasefire is tomorrow night, we simply don’t expect much to happen until Wed PM – when not only does the ceasefire come into play put we get some major tech earnings: TSLA, TXN etc.

While market makers maintain positive gamma – so do customers. So…who offsets that? Well, it appears to be pro-customers. These are high-frequency trading funds, they operate much like market makers and often size up when IVs are at extremes. That seems to be the case here, as you can see their negative gamma position is as big as we’ve evert seen in (albeit in a fairly limited data set). They also could very much be short SPX gamma and long single stock gamma.

On the topic of vols, 0DTE pricing is at bottom basement levels, which suggests that no major selloff is likely today, nor tomorrow. Here we mark the 9:30AM EST SPX straddle over time, and you see that collapse. And, while the SPX straddle was realizing all last week – we don’t think that will continue today/tomorrow as traders wait on the potential deal.

Here is SPX term structure, which is being held mildly higher in contango due to tomorrow PMs deal. But ultimately you can see we are at term structure lows – a sign that traders really aren’t too worried… as in not worried at all. This certainly is the soft spot – an unexpected restarting of violence which would trigger downside protection. The market is simply not positioned for that.

>1-week vol is only now cheap if the Peace Deal falls apart. A deal being signed, or simply punted off to some future date, likely means vols contract more. Below we show 1-month SPX RV is ~19%, but 5-day is only 6%. This shows that while OPEX hasn’t produced selling, it has marked a stopping of the voracious upside that preceded it. If longer dated vols contract, then that gives space for longer dated vol to come in, and we likely see VIX drop further towards 15. This would be a tailwind for stocks.